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Finance

Background

In general, funding selfbuild projects has become much easier over the last fifteen years or so. Financial institutions have tailored their products to help with self build especially around making stage payments as the building progresses. This includes buying the land in the first place.

However, of course the present little glitch in the capitalist economic system is severely restricting the actual availability of self build mortgages which seems to vary almost from day to day. There are differing accounts of the success rate people are having in obtaining mortgages, including the way finance is being made available to the emerging cohousing movement. It is interesting to note that the fully mutual funding bodies have generally fared better than the others during the recession. Hence the call made by many people for massive remutualisation of building societies. The building society which has done most over the years to further the green self build movement is of course the Ecology Building Society which is growing steadily.

Down payments

The deposit for a selfbuild mortgage tends to be higher than with a normal one. A mainstream mortgage may be up around the 90% mark or maybe 95% whereas with selfbuild it may be more like 70% or 75%, based on the final value of the house. This may not be quite as bad as it seems because as a self builder you will probably make some savings by doing some of the work or management yourself so you will in effect not need to spend as much money on the building process. A complicating factor is establishing the final value of the house before it is built. The higher the value, the more mortgage you get and this value is normally established by a surveyor.

Government initiatives

The minister for Housing, has announced £30m to encourage Custom Build (self build) and £17 million support to help communities build. Depending on how things pan out this could be a major stimulation for self build as there would be less of a financial burden during the period of building to completion. Connected to this is planning legislation requiring councils to identify how much land is likely to be required for self build and help make it available.

One of the long standing problems has been with building sites which are too big for a single self builder. When they come up for sale it needs a purchaser who can buy the site and then split it down into single plots and sell them on. Both local authorities and private companies have fulfilled that role occasionally in the past.

The Green Deal

This is no longer available. It was designed to finance energy-saving improvements by allowing you to pay for them later through electricity bills. They included:

insulation – eg loft or cavity wall insulation

heating

draught-proofing

double glazing

renewable energy technologies – eg solar panels or wind turbines

Stage payments

The process of stage payments means that once your mortgage is approved you can draw down finance, usually in four stages. It is normal for the lender to insist that each stage is checked by a registered surveyor before the money is released and it is your responsibility to pay the surveyor. Buildstore have pioneered the Accelerator mortgage which makes finance available before each stage of the work rather than on its completion.

Most lenders will want to see drawings of your proposed house and evidence that you have obtained planning permissionthe legal basis for being allowed to do some form of development such as building a house. (not to be confused with Building RegulationsThese are the mass of regulations that cover safety, health, welfare, convenience, energy efficiency etc. in the way buildings are constructed. Not to be confused with Planning consent (which is more to do with whether you can put up the building in the first place). See more on the regulations which are all about whether the building is properly constructed). see more on Planningthe legal basis for being allowed to do some form of development such as building a house. (not to be confused with Building Regulations which is all about whether the building is properly constructed). see more on Planning.

VAT refund

With most types of domestic self build you can claim back the VATValue added tax can, to a large extent, be reclaimed on self build. see the page on VAT on building materials at the end of the job. However there are several exceptions (such as a granny flat) and it pays to read the HM Revenue and Customs guidance notes on this.

Warranties and Insurances

Self build warranties are a form of insurance which cover the building, usually for the first ten years of its life after completion. There is a good article explaining how they work on the Homebuilding & Renovating site.

Community energy

Energyshare with Croudfunder. Since the government’s withdrawal from community energy funding, croudfunding is moving in. See the Energyshare website. Their latest email starts:

As a part of our energyshare community, you’ll know we are partnered with the UK’s leading crowdfunding platform, Crowdfunder.

Following on from our success with EnergyFundCornwall and the M&S Energy Community Energy Fund, both of which were powered by Crowdfunder, we look forward to funding even more energy projects across the UK together. We believe that crowdfunding will be an essential part of the funding mix for renewable energy projects in a post subsidy era and as an energyshare community member we want to ensure you are aware of an exciting opportunity.

3 comments to Finance

We are trying to sell a plot with outline planning permission but our buyer has just pulled out because he says that his lender would not lend with only outline planning permission. They want full planning in place. Does that sound right? Surely you can borrow money for a plot with just outline planning permission?

Hi Julie,
Have you contacted the Planners yet for an informal chat about what you want to build and the site where you want it? Most planners are more than happy to do this. Whilst what they say is only an informed opinion, it should cost you nothing but should help in early decision making.

I want to buy a property on Orkney there are 6 acres and outbuildings. It has planning permission for a traditional house but I want to build a straw bale house which will require new plans and P/P but I do not think I would be granted P/P before I was the owner of the land and I would be reluctant to pay out for a surveyor unless I knew I could obtain the initial finance to purchase the land.